Wednesday 5 March 2003
NSB Retail Systems PLC
Preliminary Results Announcement
NSB Retail Systems PLC, a leading supplier of software solutions to the global
retail industry, today announces preliminary results for the twelve months
ended 31st December 2002.
Financial Highlights:-
* Revenues �73.4m (2001: �93.8m) and operating loss (before exceptional items
and amortisation of goodwill) �0.4m (2001: �4.5m profit).
* Payroll and overhead costs reduced by �8.5m when compared to 2001.
* Exceptional costs of �9.6m include �7.1m arising from substantial
reorganisation commenced in the 4th quarter of 2002.
* When complete further cost savings of �14.0m per annum anticipated.
* Strong operating cash inflow of �3.2m.
Operational Highlights:-
* Next generation POS software successfully launched.
* Significant JCPenney contract for the new POS software product - Connected
Retailer� Store solution
* Change and re-organisation programme successfully implemented.
* Order intake up 11% in North America giving market share increase.
Nikki Beckett, Chief Executive of NSB Retail Systems commented:-
"Whilst 2002 was undoubtedly a difficult year for the retail sector, NSB has
taken decisive action to bring costs into line with lower revenues. Despite the
challenging business environment, we have won significant new competitive
business including a key contract with JCPenney for our new .Net POS store
system.
We have a strong product portfolio, unrivalled retail experience and a
committed and knowledgeable workforce. The next twelve months are unlikely to
show a marked improvement in trading conditions, however, I believe that we
have taken the necessary steps to meet the coming challenges."
Enquiries:
Tulchan Communications 0207 353 4200
Andrew Grant
Katie MacDonald-Smith
NSB Retail Systems PLC 0118 930 1500
Nikki Beckett
Stuart Mitchell
CHAIRMAN'S STATEMENT
For The NSB Group, 2002 turned out to be a year of great challenge. Our results
are disappointing but arguably not out of line with the performance of our
sector. Consumer spending softened in North America, with obvious cascading
effects on our business. As a result, some of our key clients retrenched,
postponing systems investment.
Whilst this clearly impacted on the Group's results, I am pleased to say that
we took decisive action to minimise the effects. Management restructured the
organisation, focusing on our core competencies of software, services and
support. We initiated a range of cost-cutting measures, found more ways to
drive efficiencies throughout the operations and generated cash.
As a consequence of these actions, the company is better positioned for 2003,
although our outlook is cautious in the continuing uncertain markets. We are
now leaner and more flexible, enabling us to react more rapidly to industry
trends and fresh opportunities. The 2002 annual report contains several
examples of how these measures have already enabled the company to make gains
in a challenging market, including signing on several major new clients on both
sides of the Atlantic.
The most noteworthy development of the past year was the market's enthusiasm
for our Connected Retailer� suite of products. This bodes well for the future.
Connected Retailer� is an industry-leading portfolio of solutions with the
potential to generate strong sales and renewed growth for The NSB Group.
Nevertheless, the key task going forward is to ensure that the gains made in
2002 are consolidated. I am confident that, provided there is no material
change in demand, and as we focus on cost control, improving productivity and
generating cash, we will return to a solid financial footing.
Angus Monro
Chairman
CHIEF EXECUTIVE'S REVIEW
In 2002, global political uncertainty, overcapacity, low consumer confidence
and a market reluctance to spend on IT impacted on our results - and indeed on
the results of all our competitors. To cite the most telling indicator of how
the retail industry is faring - even Wal-Mart has stumbled. These are just some
of the new realities of retailing, at least for the near future. Industry
analysts predict that this flat market will linger for at least another 12
months.
These external forces are beyond our control. However, by working on what we
could influence, NSB Group made progress in 2002.
We took decisive action to bring expenses into line with lower revenues. We
restructured the company along divisional lines rather than geographic regions.
This streamlined operations, creating a single infrastructure for Europe and
North America. However, this also meant taking the difficult, yet necessary,
decision to reduce headcount. The staff employed by the group was reduced by
154 (12.6%) throughout the year. We have closed or are closing offices whilst
maintaining good geographic coverage of our core markets. We expect ongoing
operating costs to reduce by at least a further �8m in 2003. In addition you
will also have seen the announcement of the conditional sale of our UK hardware
services business which when completed will reduce costs by a further �4m per
annum. Cost control will continue to be a focus item for 2003.
RESULTS IN BRIEF
Group revenues declined from �93.8m to �73.4m (21.7%). Hardware sales were down
across both geographies accounting for a revenue reduction of �9.9m. In the UK,
software licences and related professional services were down �9.1m reflecting
the weakness in this market over the last two years. The weakening of the US
dollar relative to the pound contributed a further �2.3m to the decrease.
Despite the �20.4m decrease in revenue, the operating loss before exceptional
items and amortisation of goodwill of �0.4m was only �4.9m lower than last
year. This is because cost actions reduced our cost base by �8.5m in the
current year and hardware is our lowest margin product line.
There are three elements to the exceptional charge of �9.6m:
* Costs of �7.1m associated with the restructuring I have previously
described being principally redundancy and facility closure costs.
* A provision against a debtor as described below - �1.8m.
* A provision to write the NSB shares held in trust for the benefit of
employees down to their market value at year end - �0.7m.
The goodwill amortisation charge arising from the Group's four year
amortisation policy was �85.3m (2001:�88.5m). However, in addition, in view of
reduced valuations in the software sector since RTC and STS were acquired in
2000 and the Group's recent financial performance, an impairment review was
conducted on the remaining goodwill. This led to an impairment charge in the
year of �99.9m (2001:�5.0m). Consequently after exceptional items and
amortisation of goodwill we have incurred an operating loss of �194.5m (2001:�
89.0m).
Operating cash inflow was �3.2m (2001: inflow �11.4m) which was strongly ahead
of the operating loss by �3.6m (2001: ahead by �6.9m). At year end cash
balances were �4.0m (2001: �10.4m).
The WIZ
At the half year we reported that our projects with the WIZ had been put on
hold while the future of the business was evaluated by its parent Cablevision.
In February 2003 Cablevision announced its intention to exit the consumer
electronics business. The stores will be closed or sold and we were given
notice that the customer did not intend to proceed with our projects.
Our contract is with Cablevision and we have requested that they settle the
unpaid contract value in the amount of US$5.5m. Cablevision has rejected this
and has in turn made a claim for damages based upon among other things breach
of contract but have subsequently proposed a settlement conditional upon both
companies dropping all claims.
The Directors believe that the Group's claim on Cablevision is valid and it
will be aggressively pursued. The Directors believe the counterclaim is without
merit. Notwithstanding, in the interests of prudence, the Group has provided
against the totality of the WIZ debtor balance (�1.8m) as an operating
exceptional item at year end.
LEADING WITH OUR STRENGTHS
Whilst the challenges are great, let us also take stock of NSB Group's
strengths and why we continue to attract many of the world's top retailers.
* Retail experience: With roots stretching back to 1972, NSB Group represents
unmatched industry experience.
* Customer base: Our clients are household names throughout the UK, Europe
and North America.
* People: Our staff possess in-depth knowledge, competitive drive and
customer focus.
* Global reach: Retailers expanding across borders need partners with NSB
Group's international reach.
* Product portfolio: Our leading-edge Connected Retailer solutions respond to
the new realities of retailing with real benefits.
* Brand strength: NSB Group was ranked first for Strategic Value by RIS News,
one of North America's premier industry publications. We are recognised as
a leader in the industry.
NEW BUSINESS
Despite the market's reluctance to invest in technology, in 2002 we
successfully communicated our key value proposition: with Connected Retailer
solutions, retailers can cut costs and ratchet up efficiencies to deliver
sustainable competitive advantage and so better cope with a slow economy. As a
result, we signed several major contracts:
* Lindex, a leading Swedish clothing retailer with more than 350 stores
across four northern European countries, chose Connected Retailer CRM to
manage its loyalty programmes.
* Hudson News, a specialty retailer in the US with 244 stores, chose Store
and Sales Analytics solutions.
* A&G Group, comprising Asprey and the Crown Jewellers Garrard, installed
Connected Retailer Store, Sales Analytics and CRM solutions.
* Northern Group Retail Ltd., a Canadian specialty-apparel retailer with 275
stores, purchased 14 Connected Retailer Products to modernise and enhance a
series of key business functions.
* Brown Thomas, Ireland's premier department stores purchased Connected
Retailer Store, Sales Analytics (including Loss Prevention) and CRM.
* Fortunoff, jewellery and home furnishings, selected Connected Retailer
Store and CRM for its stores in New York and New Jersey.
* a|wear, part of the Brown Thomas Group purchased Connecter Retailer
Merchandising.
Throughout 2002, several other clients strengthened their investment in our
Connected Retailer solutions portfolio. Amongst these was Liz Claiborne, who
made a strategic decision to implement Connected Retailer Store across its
entire estate worldwide, following a successful implementation at its European
business Mexx. Another long-standing client, La Senza, an international
private-label retailer of lingerie and sleepwear with 275 stores, decided to
add Loss Prevention and Replenishment.
Late in 2002, noted retailers Clarks, Carters, Triminghams, DCK Concessions
(the UK's leading fashion jewellery retailer) and Oasis also signed with us.
POWERFUL MICROSOFT PARTNERSHIP
Most recently JCPenney, with one of the largest point-of-sale populations in
North America, chose to implement our next-generation Microsoft .NET-based
Connected Retailer Store Solution. As I said at the time, we view this as an
endorsement of our Microsoft-centric approach and the significant investment we
have made to adopt .NET as our preferred technology platform.
THE YEAR AHEAD
Although NSB Group has made great strides in challenging times, I believe we
can accomplish more in 2003 if we maintain our focus and intensity whilst
addressing some of the strategic and industry issues that lie ahead:
* Migration: Existing clients represent the best opportunity for generating
new revenue in difficult economic conditions when Boards are reluctant to
invest in totally new capital projects. Our job is to communicate the
benefits of `migrating' up from the client's legacy systems, and making the
migration path attractive with simple and cost-effective plans, alongside
demonstrating the clear ROI for retailers of adding complementary
additional products to their existing NSB solutions. We were successful
with several large clients in 2002; however, much potential remains.
* .NET: Microsoft's newest technology offers significant power, flexibility
and cost savings to retailers. For example it opens up the possibility for
a single solution to be implemented on a wide range of devices, whether
point of sale, kiosk or server with the same code base. As a long-standing
Microsoft Certified Partner, NSB Group worked with Microsoft and based its
new POS 6.0 solution on .NET, which we unveiled to great acclaim at NRF,
North America's biggest retail trade show. In fact, private demonstrations
of our .NET solution quickly sold out at NRF, as more than 25 retailers
demanded information and interviews. During 2003, we will introduce further
.NET solutions to the Connected Retailer portfolio.
In efforts to root our strategy in the real needs and concerns of clients, we
convened an Executive Client Advisory Board ("ECAB") at NRF. This reviewed
emerging technologies with senior executives from our clients to ensure our
development plans are in step with the market. Some of our ECAB's conclusions:
* Business intelligence: `Predictive modelling' enables systems to `think'
and make decisions based on vast amounts of data. Clients welcome the new
tool but believe we need the right balance between automation and human
input.
* Mobile computing: Sales representatives and customers armed with wireless
devices could soon obtain product information, check prices and complete
sales `on the go', bypassing the traditional POS queue. Some retailers even
contemplate going fully wireless. Whilst this is the way of the future, the
return on investment must be secure before retailers make the financial
commitment.
* Radio Frequency Identification (RFID): Expected to someday replace bar
codes, RFID systems `tag' every item of merchandise with a tiny
transmitter. Inventory and product tracking can thus be performed
instantly, check-outs are faster and the entire supply chain operates more
smoothly. Although this technology is being used by some retailers, it
needs further development.
OUR STRENGTH IN PEOPLE
In a tough market, the people of NSB Group are more united and more determined
than ever to succeed. The corporate culture remains focused on this company's
long-term success by serving the customer exceedingly well.
We now operate a leaner company whose divisions report to a single CEO. The
divisions include Marketing, Sales, Development, Customer Support, Customer
Services, HR and Administration and Finance. Apart from its associated savings,
the restructuring further unifies our team, eliminating competition for
resources and promoting one cohesive culture.
BOARD CHANGES
During the year, Howard Stotland and Bill Lassner have stepped down from the
Board. I thank them for their contributions to our company and to our Board of
Directors.
OUTLOOK
As I take stock of all we accomplished in 2002 and look forward to 2003, I am
confident that we have taken the right steps. Whilst industry conditions are
unlikely to improve in the near term, NSB Group is better prepared to take
advantage of the opportunities which are available. We have cut costs, we have
restructured and we're now working with renewed energy and focus. We have the
leading-edge products the market demands and we have the people to support our
clients' success.
Nikki Beckett
Chief Executive
FINANCE DIRECTOR'S REVIEW
OPERATING RESULT
Overall Group revenues declined 21.7% to �73.4m and earnings fell by �4.9m to
give a reported operating loss of �0.4m (before exceptional items and goodwill
amortisation). Details of the exceptional items and goodwill amortisation are
set out below and result in an operating loss of �194.5m (2001:�89.0m).
Revenues
Revenues in our North American operation fell to �50.9m from �58.7m last year.
The weakening of the US dollar from an average of 1.44 in 2001 to 1.5 to the
pound in 2002 accounted for �2.3m of the decrease, with a decline in hardware
sales of �5.3m being the principal reason for the rest.
In the UK revenues fell �12.7m (36%) to �22.5m, with reduced sales of hardware
accounting for �4.6m of the decrease. Software licences and related
professional services declined �9.1m reflecting weak conditions in the UK
market and resultant poor order intake over the last two years.
Cost Base
After eliminating the cost of bought-in hardware and third party software,
Group operating costs were �69.0m compared to �77.5m in the previous year. Cost
actions accounted for most of the decrease, with headcount falling from 1409 at
the beginning of 2001 to 1003 at the end of Feb 2003. The Group embarked upon a
significant restructuring programme in the final quarter of 2002. A large part
of the benefit will be realised in 2003 but the full benefit will not be seen
until 2004. This restructuring is described below in exceptional items.
Research and Development
Own funded R&D expenditure totalled �12.9m compared to �14.5m last year. This
represents 17.6% of revenues (2001-15.5%), emphasising the Group's commitment
to be at the forefront of market and product innovation.
Order Book
Order intake (licences only) in North America was �14.1m, an 11% increase on
last year on a currency adjusted basis. At 31 December the order book (licences
only) stood at �10.3m (2001-�10.2m) of which it is anticipated �3.5m will be
recognised in 2003. The pipeline of qualified business opportunities (licences
only) capable of closing during 2003 at �36.1m is consistent with the
comparable time last year on a currency adjusted basis.
Order intake (licences only) in the UK was �2.4m, a decline from last year's
level of �8.5m. At 31 December the order book (licences only) stood at �2.7m
(2001-�6.1m) of which it is anticipated �1.8m will be recognised in 2003. The
pipeline of qualified business opportunities (licences only) capable of closing
during 2003 is currently �13m. This is higher than the �10.7m at the comparable
time last year.
EXCEPTIONAL ITEMS
Exceptional costs of �9.6m comprise the following:
Redundancy costs of �3.8m and facility closure costs of �3.0m associated with
the restructuring of the business. There are also asset write downs of �0.25m
associated with the restructuring.
Because of the contractual dispute with Cablevision described in the Chief
Executive's review, the Directors have included a provision of �1.8m against
the related debtor. The Directors view Cablevision's claim for breach of
contract for the amount of US$22.0m as without merit and no provision is
required.
Amounts written off investments of �0.7m represents a provision to write the
NSB shares held in the NSB Share Ownership Trust for the benefit of employees
down to their market value at year end.
GOODWILL CHARGE
The Group's policy is to write-off acquired goodwill over a 4 year period,
producing a �85.3m charge in 2002 (2001- �88.5m).
In addition FRS10 requires that goodwill should be re-evaluated if conditions
are indicative of a decline in value of acquired businesses and, if necessary,
an impairment charge taken. The Directors concluded that such a re-evaluation
was warranted in view of the softness of the Group's markets, the recent
financial performance, 2003 outlook for STS and RTC, the market value of NSB
and general fall in valuation multiples in the retail software sector. This
impairment review resulted in a further charge of �99.9m (2001- �5.0m).
TAX AND INTEREST
The Group commenced paying interest on the Exchangeable Convertible Preference
Shares ("ECPS") in February 2002 as part of a November 2001 restructuring of
this instrument issued at the time STS was acquired. Interest expense of �1.0m
arises on this debt.
The Group has a tax presence in the UK, Canada and the USA. The tax credit in
2002 arose from:
* A credit in the UK for taxes overpaid in prior years principally arising
from the adoption of the principles of US GAAP revenue recognition policies
in 2001. UK operating losses including exceptional costs mean that the
Group now has substantial tax losses to carry forward.
* A small charge for Canadian taxes. The Group continues to benefit from the
ability to take part of the purchase price for STS as a deduction against
taxes in Canada.
* A charge to US taxes on the Group's sales, services and development
activities in the USA.
(LOSS)/EARNINGS PER SHARE
The Board considers the most relevant measure of (loss)/earnings per share
(EPS) is adjusted basic EPS being post tax (losses)/profits (excluding
exceptional items and amortisation and impairment of goodwill) divided by the
weighted average number of shares in issue. EPS calculated on this basis was a
loss per share of 0.16p. (2001 - EPS 0.85p).
CASH FLOW
The cash inflow from operations was �3.2m (2001 - �11.4m). This inflow exceeded
the operating loss, again benefiting from reductions in working capital in both
geographies.
In North America trade receivables at December 2002 were �11.3m a fall of �4.0m
from the comparable position last year. Days sales outstanding (DSO) were 84
days (2001- 82 days).
In the UK trade receivables at December 2002 were �5.8m a fall of �6.2m from
the comparable position last year. Days sales outstanding (DSO) were 44 days
(2001- 90 days).
Non-operating cash flows totalled �9.7m, the most significant elements being:
* Scheduled principal and interest payments on the ECPS- �4.7m.
* Purchase of Own Shares- �1.0m.
* Repayment of mortgage on property in Columbus Ohio- �0.8m.
* Repayment of loan notes issued at the time of the RTC acquisition- �1.0m.
* Tax paid- �1.1m.
* Capital expenditure- �1.2m. Principally arising from the implementation of
the Lawson financial system which is now complete.
CAPITAL STRUCTURE, BANK FACILITIES AND LONG TERM FUNDING
Shareholders' funds decreased by �194.4m in the period. Retained losses of �
195.4m accounted for most of the decrease. Other changes included an unrealised
exchange gain of �0.9m principally arising on the ECPS instrument which is
denominated in Canadian dollars (see below).
Shareholders funds in the Parent Company show a deficit on distributable
reserves of �266m principally arising from the write-down of the investments in
STS and RTC evident from the goodwill impairment review. The Group is unable to
pay dividends while there is a deficit on distributable reserves.
The Group has bank facilities in the UK, provided by The Royal Bank of Scotland
and Canada provided by Royal Bank of Canada. The UK facilities are currently
under review and it is anticipated a multi-option facility of �0.5m will be
agreed. This facility will be secured by a general debenture over the UK assets
of the group.
In Canada the Group has recently agreed an extension to its C$5.5m multi-option
facility secured upon the trade debtors of STS Systems Ltd.
The only long term funding the Group has is the ECPS which was part of the STS
purchase price. This instrument was restructured in November 2001 and again in
October 2002 and is now a debt instrument payable on the following dates:
31 March 2004 Canadian $12m
31 January 2005 Canadian $14m
31 January 2006 Canadian $12m
31 July 2006 Canadian $2m
31 January 2007 Canadian $4m
31 July 2007 Canadian $6m
Interest is payable at an effective rate of 5% on amounts outstanding. As part
of the October 2002 restructuring of the instrument the holders are entitled to
a second ranking charge over all of the Group's assets should the Group's
bankers take first ranking security over the same assets.
TREASURY
The Group operates a centralised Group Treasury function. Cash balances and
cash flow forecasts are monitored centrally although the placing of surplus
funds on deposit is the responsibility of the individual business units.
Group Treasury is also responsible for the implementation of the Group's
foreign exchange hedging policies. Through the North American operation, the
Group has significant exposure to both the US and Canadian Dollar. Most of its
revenues are earned in US Dollars although the cost base is substantially
Canadian Dollars. However, overall this business is a US Dollar earner.
In light of this the Board has adopted the following hedge policy:
1. Group Treasury is to sell forward US Dollars to cover 75% of the Canadian
Dollar costs. Hedging is undertaken annually once budgets are approved.
2. Group Treasury is to hedge 75% of the budgeted US Dollar net income of the
North American business. Again, this is carried out once budgets are
approved.
The Board has concluded that, since investments in overseas Group companies are
considered long term assets and exchange rates with Sterling are likely to
return to equilibrium over time, there is no requirement to hedge the net
assets of overseas Group companies. Where an investment is not considered long
term or market conditions suggest equilibrium is unlikely, the Board will
review its position of not hedging such assets.
As reported last year, the ECPS is considered long term debt rather than equity
of the company and this position has not altered following the re-negotiation
of their terms. However, as the ECPS is acquisition related debt, exchange
movements on the value of the amount outstanding at each balance sheet date are
taken directly to reserves rather than being credited to the Profit and Loss
Account. The Board has therefore concluded that no hedging of the ECPS is
required.
GOING CONCERN
The financial statements will be prepared on a Going Concern basis as set out
in note 1 in the basis of preparation.
Stuart Mitchell
Group Finance Director
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2002
2002 2002 2002 2001 2001 2001
(Unaudited) (Unaudited) (Unaudited) (Audited) (Audited) (Audited)
Pre- Pre-
goodwill & Goodwill & goodwill & Goodwill &
exceptional exceptional exceptional exceptional
costs costs Total costs costs Total
Note �000 �000 �000 �000 �000 �000
Turnover 2 73,359 - 73,359 93,818 - 93,818
Cost of sales (60,858) - (60,858) (74,554) - (74,554)
Gross profit 12,501 - 12,501 19,264 - 19,264
Administrative
expenses
- before goodwill 3 (12,884) (8,814) (21,698) (14,767) - (14,767)
- goodwill 4 - (185,268) (185,268) - (93,470) (93,470)
Operating (loss)/ (383) (194,082) (194,465) 4,497 (93,470) (88,973)
profit
Interest receivable 295 - 295 146 - 146
Amounts written off 7 - (738) (738) - - -
investments
Interest payable
and similar (1,324) - (1,324) (492) - (492)
charges
(Loss)/profit on
ordinary (1,412) (194,820) (196,232) 4,151 (93,470) (89,319)
activities before
taxation
Tax credit/(charge)
on loss 5 784 (754)
on ordinary
activities
Retained loss on
ordinary (195,448) (90,073)
activities after
taxation
(LOSS)/EARNINGS PER ORDINARY SHARE
2002 2001
Note (Unaudited) (Audited)
6 Pence Pence
Basic (49.05) (22.63)
Adjusted basic (excluding
amortisation and (0.16) 0.85
impairment of goodwill and
exceptional costs)
Diluted (49.05) (22.63)
Adjusted diluted (excluding
amortisation and (0.16) 0.82
impairment of goodwill and
exceptional costs)
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED
31 DECEMBER 2002
2002 2001
(Unaudited) (Audited)
Note �000 �000
Loss for the financial year (195,448) (90,073)
Exchange differences 925 98
Total gains and (losses) relating (194,523) (89,975)
to the year
CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2002
2002 2002 2001 2001
(Unaudited) (Unaudited) (Audited) (Audited)
Note �000 �000 �000 �000
Fixed assets:
- Intangible assets 4 57,444 242,712
- Tangible assets 4,832 5,530
- Investments 7 252 -
62,528 248,242
Current assets:
- Stock 1,425 920
- Debtors 8 26,925 38,452
- Cash at bank and in hand 3,974 10,432
32,324 49,804
Creditors: amounts falling
due within 9 (31,079) (43,110)
one year
Net current assets 1,245 6,694
Total assets less current 63,773 254,936
liabilities
Creditors: amounts falling
due after more
than one year
Exchangeable convertible (21,522)
preference (19,763)
shares
Other creditors (291) (683)
(20,054) (22,205)
Provisions for liabilities 10 (5,527) (156)
and charges
Net assets 38,192 232,575
Capital and reserves:
Called up share capital 6,479 6,367
Share premium account 191,318 186,643
Exchangeable shares 131,033 135,680
Merger reserve 3,638 3,638
Warrant reserve 7,564 7,564
Profit and loss account (301,840) (107,317)
Equity shareholders' funds 11 38,192 232,575
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002
2002 2001
(Unaudited) (Audited)
Note �000 �000
Cash flow from operating 3,213 11,421
activities
Returns on investments and (402) (336)
servicing of finance
Taxation (1,105) (1,525)
Capital expenditure and purchase (2,201) (1,586)
of own shares
Acquisitions:
STS (net) - (2,737)
Cash (outflow)/inflow before (495) 5,237
financing
Financing (5,963) (31)
(Decrease)/increase in cash in (6,458) 5,206
the period
Reconciliation of net cash flow
to movement
in net funds:
(Decrease)/increase in cash in (6,458) 5,206
the period
Cash outflow from decrease in
debt and lease 5,137 24
financing
Exchangeable convertible - (25,826)
preference shares
Exchange movements 1,714 19
Change in net debt 12 393 (20,577)
Net (debt)/funds at beginning of 12 (16,182) 4,395
period
Net debt at end of period 12 (15,789) (16,182)
Reconciliation of operating
profit to net
cash flow from operating
activities:
Operating loss (194,465) (88,973)
Depreciation and amortisation 187,750 94,547
charges
Loss/(profit) on sale of fixed 54 (9)
assets
(Increase)/decrease in stock (505) 404
Decrease in debtors 11,527 10,673
(Decrease) in creditors (6,519) (5,333)
Increase in provisions for 5,371 112
liabilities and charges
Net cash flow from operating 3,213 11,421
activities
NOTES
1. BASIS OF PREPARATION
The preliminary results have been prepared in accordance with the Group's
accounting policies and are consistent with the policies set out in the annual
report and accounts for the year to 31 December 2001.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2002 or 2001. The statutory
accounts for 2002 will be finalised on the basis of the financial information
presented by the Directors in this preliminary announcement and will be
delivered to the Registrar of Companies following the Company's annual general
meeting.
The financial statements will be prepared on the going concern basis which the
Directors believe to be appropriate for the following reasons.
The Group made an operating loss before amortisation of goodwill and
exceptional items in the year ended 31 December 2002 of �383,000 and incurred
exceptional reorganisation, rationalisation and bad debt charges of �8,814,000.
At 31 December 2002 the Group had net cash balances of �3,974,000. The
Directors have prepared their 2003 budget and cash projections for the 15 month
period ended 31 March 2004 which take into account the effects of the
reorganisation the Group has carried out.
These projections show that the Group will generate cash in the fifteen month
period which together with the Bank facilities in place will enable the Group
to meet its liabilities as they fall due. These include provision for the
scheduled repayment on 31 January 2004 of Canadian $12 million to the holders
of the Exchangeable Convertible Preference Shares (`ECPS').
Due to the nature of the Group's business there can be unpredictable variation
in the timing of cash flows. Accordingly the Directors have obtained an
undertaking from the holders of the ECPS that they will, both jointly and
severably, defer the date of part redemption of the ECPS from 31 January 2004
until 31 March 2004. In the event the projections are not being met the
Directors will take actions to safeguard the cash generation including a
tighter control on costs and any other appropriate measures.
2. TURNOVER
A geographical analysis of turnover by destination is as follows:
2002 2001
(Unaudited) (Audited)
�000 �000
Europe 22,441 35,207
North America 50,918 58,611
73,359 93,818
A geographical analysis of turnover by origin is as follows:
2002 2001
(Unaudited) (Audited)
�000 �000
Europe 22,441 35,132
North America 50,918 58,686
73,359 93,818
An analysis of turnover by activity is as follows:
2002 2001
(Unaudited) (Audited)
�000 �000
Software licences 19,797 22,997
Software services and support 47,513 54,288
Hardware and associated services 6,049 16,533
73,359 93,818
3. EXCEPTIONAL ITEMS
Administrative expenses include exceptional items of �8,814,000 and amounts
written off investments contain exceptional items of �738,000. These are
detailed below:
2002 2001
(Unaudited) (Audited)
�000 �000
Included in administrative expenses:
Redundancy costs 3,759 -
Facilities costs 3,016 -
Asset write downs 250 -
Contractual dispute 1,789 -
8,814 -
Amounts written off investments 738 -
9,552 -
Exceptional costs comprise the following:
Redundancy costs of �3,759,000 and facility closure costs of �3,016,000
associated with the restructuring of the business. There are also asset write
downs of �250,000 associated with the restructuring.
A provision of �1,789,000 against a debtor with whom there is currently a
contractual dispute (further detailed in note 13).
Amounts written off investments of �738,000 represents a provision to write
down the NSB shares held in the NSB Share Ownership Trust to their market value
at year end following a review by the Directors (see note 7).
4. INTANGIBLE ASSETS
An analysis of goodwill, amortisation charge and net book value is as follows:
2002 2002 2001 2001
(Unaudited) (Unaudited) (Audited) (Audited)
Profit and Balance Profit and Balance
loss charge sheet loss charge sheet
�000 �000 �000 �000
Upon acquisition of:
APT 396 - 1,192 396
Real Time Control ("RTC") 23,724 7,401 21,881 31,125
STS 161,148 50,043 70,397 211,191
185,268 57,444 93,470 242,712
The Directors have adopted a four year amortisation period which they believe
is appropriate for all acquisitions.
The Directors have reviewed the value of goodwill at 31 December 2002 and, as
required by FRS 11 - "Impairment of Fixed Assets and Goodwill" have written
down the value of goodwill on RTC by a further �9,180,000 and STS by a further
�90,750,000 over the annual amortisation charge.
5. TAXATION
2002 2001
(Unaudited) (Audited)
�000 �000
UK corporation tax at 30.00% (2001: (172) (339)
30.00%)
UK adjustments for prior periods (1,079) -
Overseas taxes 316 385
UK deferred taxation 157 861
Overseas deferred taxation (6) (153)
Tax (credit)/charge (784) 754
The differences between the total current tax rate shown above and the amounts
calculated by applying the standard rate of UK corporation tax to the loss
before tax is as follows:
2002 2001
(Unaudited) (Audited)
�000 �000
Tax on Group loss on ordinary
activities at standard (58,870) (26,796)
UK corporation tax rate of 30% (2001:
30%)
Expenses not deductible for tax
purposes including 54,964 27,263
goodwill amortisation
Other short term timing differences
and utilisation 3,863 160
of tax losses
Higher tax rates on overseas earnings 338 100
Adjustments to tax charge in respect
of previous (1,079) 27
periods
Group current tax (credit)/charge for (784) 754
period
6. (LOSS)/EARNINGS PER SHARE
Earnings per share is calculated based on the provisions of Financial Reporting
Standard 14 - `Earnings per share'.
Basic loss per share is calculated by dividing the loss after taxation of �
195,448,000 by 398.5 million ordinary shares being the weighted average number
of shares in issue. (2001: �90,073,000 loss and 398.0 million shares.)
Adjusted basic (loss)/earnings per share is calculated by dividing loss after
taxation of �195,448,000 but before amortisation and impairment of goodwill
arising on consolidation of �185,268,000 and exceptional items of �9,552,000 to
give an overall total loss of �628,000 which is divided by 398.5 million
ordinary shares being the weighted average number of shares in issue during the
year (2001: �3,397,000 profit and 398.0 million shares.)
Adjusted diluted earnings per share has been calculated by dividing the loss
after taxation of �195,448,000 but before amortisation and impairment of
goodwill arising on consolidation of �185,268,000 and exceptional items of �
9,552,000 to give an overall total loss of �628,000 which is divided by 406.0
million shares, being the average number of shares, including unexercised share
options during the year (2001: �3,397,000 profit and 412.0 million shares).
For the purposes of the disclosures required by FRS14 "Earnings per share" none
of the potential ordinary shares are regarded as being dilutive as their
conversion would reduce the basic net loss per share. Consequently the diluted
loss per share is the same as the basic loss per share.
2002 2001
(Unaudited) (Audited)
(Million Shares) (Million Shares)
Weighted average number of shares 398.5 398.0
Dilutive share options 7.5 14.0
Weighted average number of shares for
diluted 406.0 412.0
earnings per share
�000 �000
Loss after taxation (195,448) (90,073)
Adjustment for goodwill amortisation 185,268 93,470
and impairment
Adjustment for exceptional items 9,552 -
Adjusted (loss)/earnings (628) 3,397
7. INVESTMENTS
2002 2001
(Unaudited) (Audited)
�000 �000
Own shares 252 -
Fixed asset investments of �252,000 relate to own shares purchased by the NSB
Employee Share Ownership Trust. These have been classified within fixed asset
investments, as the shares are held for the continuing benefit of the Company
through the reward of its employees. The shares have yet to vest
unconditionally with the employees and as such have been recognised as a fixed
asset of the Company. At the year end the Directors reviewed the valuation of
this investment and a write down of �738,000 has been made to the investment to
the market value of the shares at 31 December 2002.
8. DEBTORS
2002 2001
(Unaudited) (Audited)
�000 �000
Trade debtors 17,070 27,335
Accrued income 4,267 5,332
Other debtors 707 1,249
Corporation tax 1,154 325
Prepayments 3,144 3,283
Total debtors due within one year 26,342 37,524
Other debtors recoverable in more than 583 928
one year
26,925 38,452
Other debtors recoverable in more than one year relate to Federal R&D tax
credit recoverable in North America.
9. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
2002 2001
(Unaudited) (Audited)
�000 �000
Bank loans and overdrafts - 105
Payments received on account 1,626 1,312
Trade creditors 3,395 4,813
Corporation tax 23 1,234
Taxation and social security 806 2,472
Exchangeable convertible preference - 4,304
shares
Other creditors 1,263 1,896
Accruals and deferred income 23,966 26,974
31,079 43,110
10. PROVISIONS FOR LIABILITIES AND CHARGES
2002 2001
(Unaudited) (Audited)
�000 �000
SSAP 24 Defined benefit pension - (23)
provision
Deferred taxation (284) (133)
Restructuring (5,243) -
(5,527) (156)
The restructuring provision is for the future costs to be incurred in 2003 and
2004 following the Company's decision to restructure its business. The costs to
be incurred principally relate to redundancies and facilities costs.
11. RECONCILIATION OF MOVEMENT IN SHAREHOLDER'S FUNDS FOR THE YEAR ENDED 31
DECEMBER 2002
2002 2001
(Unaudited) (Audited)
�000 �000
Retained loss for the financial year (195,448) (90,073)
Exchange differences 925 98
Issue of share capital 140 130
Cost of shares issued for the STS - (137)
acquisition
Net (deduction) to shareholders' funds (194,383) (89,982)
Opening shareholders' funds 232,575 322,557
Closing shareholders' funds 38,192 232,575
12. ANALYSIS OF NET DEBT
At beginning Cash flow Exchange At end
of year movements of year
�000 �000 �000 �000
Cash at bank and in hand 10,432 (6,458) - 3,974
Bank loans due within one (105) 103 2 -
year
Banks loans due after one (683) 670 13 -
year
ECPS due within one year (4,304) 4,364 (60) -
ECPS due after one year (21,522) - 1,759 (19,763)
Net (debt)/funds (16,182) (1,321) 1,714 (15,789)
13. CONTRACTUAL DISPUTE
In August our projects with the Wiz had been put on hold while the future of
the business was evaluated by its parent Cablevision. In February 2003
Cablevision announced it intended to exit the consumer electronics business and
the remaining stores would be closed or sold and we were given notice that the
customer did not intend to proceed with our projects.
Our contract is with Cablevision and we have requested that they settle the
unpaid contract value in the amount of US$5.5m. Cablevision has rejected this
and has in turn made a claim for damages based upon among other things breach
of contract but have subsequently proposed a settlement conditional upon both
companies dropping all claims.
The Directors believe that the Group's claim on Cablevision is valid and it
will be aggressively pursued. After seeking appropriate legal advice, the
Directors believe the counterclaim is without merit. Notwithstanding, in the
interests of prudence, the Group has provided against the totality of the WIZ
debtor balance totalling �1,789,000 (comprising trade debtor of �382,000 and
accrued income of �1,407,000) as an operating exceptional item at year end.
END
